VEDANTA cmp 257, target of 300 ++ in 10-15 trading sessions
Vedanta Ltd is a diversified natural resource group engaged in exploring, extracting and processing minerals and oil & gas. The group engages in the exploration, production and sale of zinc, lead, silver, copper, aluminium, iron ore and oil & gas. It has presence across India, South Africa, Namibia, Ireland, Liberia & UAE.
Its other businesses includes commercial power generation, steel manufacturing & port operations in India and manufacturing of glass substrate in South Korea and Taiwan. Vedanta is the market leader in production of Nickel in India. Below are the revenue-mix details of various businesses:
1. Zinc, Lead & Silver (25% of revenues)
It runs its Indian Zinc operations through its subsidiary, Hindustan Zinc Ltd (HZL) in which it owns ~65% stake. HZL is the largest primary zinc producer in India, with an expected 80% market share in 2022.One of the most notable achievements has been the successful commissioning of a 3000 KLD Zero Liquid discharge (RO-ZLD) plant at the Zinc Smelter Debari
2. Oil & Gas (9% of revenues)
The Co. is India’s largest private sector crude oil producer. It accounts for ~25% of the total crude oil production of India.
3. Aluminium Business (39% of revenues)
Vedanta has the largest aluminium installed capacity in India at 2.3 mtpa. It has a 47% market share in India among primary aluminium producers. Mines - Via BALCO, the company has 2 bauxite mines with capacity of ~2 MnTPA of bauxite and a coal mine to capacity of 1 MnTPA.
4. Power Segment (4% of revenues)
Its flagship power project Talwandi Sabo Power Ltd (TSPL) is located in Punjab. The company has 25 years of long-term power purchase agreement with Punjab State Electricity board
5. Iron Ore Segment (5% of revenues)
Vedanta is one of the largest merchant iron-ore miners in India.
6. Copper Business (12% of revenues)
This includes refinery and rod plant Silvassa consisting of a 133,000 MT of blister/secondary material processing plant, a 216,000 tpa copper refinery plant and a copper rod mill with an installed capacity of 258,000 tpa. Its international copper operations include a copper mine in Tasmania, Australia which remains under care and maintenance. It is evaluating various operations to restart mining operations.
7. Other Businesses (6% of revenues)
The Co. is also engaged in the business of steel manufacturing and port operations in India and manufacturing of glass substrate in South Korea and Taiwan.
Upcoming Growth & Projects:
Vedanta has a strong pipeline of growth projects and is incorporating future enabling businesses in its portfolio. In the Oil & Gas segment, the Co. intends to undertake new growth capex projects worth $687mn. In the Aluminium segment, it intends to incur a $1.4 bn growth capex over 2 years. This includes aluminium capacity expansion to 3 MTPA by Q3 FY24, Alumina capacity expansion to 6 MTPA by FY24 & 100% operationalization of 3 coal mines in a phased manner by Q3 FY24.
The company is focused on community development and achieving a greener business model. Vedanta achieved a 5-point improvement in the S&P Global Corporate Sustainability Assessment Index.
Current Performance and News:
Vedanta reported strong financial results for Q2 FY '24, with highest ever second quarter consolidated revenue, EBITDA, and PAT. Operational performance was strong across all businesses, with healthy production and cost control. The aluminium sector delivered one of its best quarters in terms of production and operational efficiency. Hindustan Zinc remained in the first decile of the cost curve globally, with further cost reductions. The oil and gas business delivered stable production and reduced operating expenses through optimization. The iron ore business saw higher sales and margin expansion.
The company received a favourable arbitration award in its oil and gas business, resulting in a positive impact on revenue and EBITDA. The INR4,600 crores gained from the arbitration award will be realized in cash over the next few quarters. Vedanta Limited has upcoming debt maturities of around $1 billion in the next two quarters, but the company feels comfortable in managing refinancing or repayment. Vedanta Limited's Board has approved the proposal to demerge the business into six independent listed entities.
Key Ratios:
Market Cap - ₹ 95,606 Cr
ROCE - 21.2 %
ROE - 20.4 %
Dividend Yield - 39.2 %
Debt to equity - 2.38
Stock P/E - 19.3
Industry PE - 17.5
Conclusion:
Technically, the strong price pattern at the bottom and then there is a trendline and price pattern breakout with huge volumes and there is change in price structure from lower highs lower lows to higher highs and higher lows. This itself gives strong conviction to buy at current levels and add more on dips if it comes. Vedanta is the market leader in the commodities segment and looking at the current market scenarios where metal, oil & gas and power sector are doing well due to various macro-environment factors and the company's improvement in profit and profit margins, various growth prospects, debt repayment being taken cared of and demerger benefits, the stock at current market price of 257 is a strong value buy for a minimum target of 300 in 10-15 trading sessions, which gives return of 16% in just 2 weeks.
Its other businesses includes commercial power generation, steel manufacturing & port operations in India and manufacturing of glass substrate in South Korea and Taiwan. Vedanta is the market leader in production of Nickel in India. Below are the revenue-mix details of various businesses:
1. Zinc, Lead & Silver (25% of revenues)
It runs its Indian Zinc operations through its subsidiary, Hindustan Zinc Ltd (HZL) in which it owns ~65% stake. HZL is the largest primary zinc producer in India, with an expected 80% market share in 2022.One of the most notable achievements has been the successful commissioning of a 3000 KLD Zero Liquid discharge (RO-ZLD) plant at the Zinc Smelter Debari
2. Oil & Gas (9% of revenues)
The Co. is India’s largest private sector crude oil producer. It accounts for ~25% of the total crude oil production of India.
3. Aluminium Business (39% of revenues)
Vedanta has the largest aluminium installed capacity in India at 2.3 mtpa. It has a 47% market share in India among primary aluminium producers. Mines - Via BALCO, the company has 2 bauxite mines with capacity of ~2 MnTPA of bauxite and a coal mine to capacity of 1 MnTPA.
4. Power Segment (4% of revenues)
Its flagship power project Talwandi Sabo Power Ltd (TSPL) is located in Punjab. The company has 25 years of long-term power purchase agreement with Punjab State Electricity board
5. Iron Ore Segment (5% of revenues)
Vedanta is one of the largest merchant iron-ore miners in India.
6. Copper Business (12% of revenues)
This includes refinery and rod plant Silvassa consisting of a 133,000 MT of blister/secondary material processing plant, a 216,000 tpa copper refinery plant and a copper rod mill with an installed capacity of 258,000 tpa. Its international copper operations include a copper mine in Tasmania, Australia which remains under care and maintenance. It is evaluating various operations to restart mining operations.
7. Other Businesses (6% of revenues)
The Co. is also engaged in the business of steel manufacturing and port operations in India and manufacturing of glass substrate in South Korea and Taiwan.
Upcoming Growth & Projects:
Vedanta has a strong pipeline of growth projects and is incorporating future enabling businesses in its portfolio. In the Oil & Gas segment, the Co. intends to undertake new growth capex projects worth $687mn. In the Aluminium segment, it intends to incur a $1.4 bn growth capex over 2 years. This includes aluminium capacity expansion to 3 MTPA by Q3 FY24, Alumina capacity expansion to 6 MTPA by FY24 & 100% operationalization of 3 coal mines in a phased manner by Q3 FY24.
The company is focused on community development and achieving a greener business model. Vedanta achieved a 5-point improvement in the S&P Global Corporate Sustainability Assessment Index.
Current Performance and News:
Vedanta reported strong financial results for Q2 FY '24, with highest ever second quarter consolidated revenue, EBITDA, and PAT. Operational performance was strong across all businesses, with healthy production and cost control. The aluminium sector delivered one of its best quarters in terms of production and operational efficiency. Hindustan Zinc remained in the first decile of the cost curve globally, with further cost reductions. The oil and gas business delivered stable production and reduced operating expenses through optimization. The iron ore business saw higher sales and margin expansion.
The company received a favourable arbitration award in its oil and gas business, resulting in a positive impact on revenue and EBITDA. The INR4,600 crores gained from the arbitration award will be realized in cash over the next few quarters. Vedanta Limited has upcoming debt maturities of around $1 billion in the next two quarters, but the company feels comfortable in managing refinancing or repayment. Vedanta Limited's Board has approved the proposal to demerge the business into six independent listed entities.
Key Ratios:
Market Cap - ₹ 95,606 Cr
ROCE - 21.2 %
ROE - 20.4 %
Dividend Yield - 39.2 %
Debt to equity - 2.38
Stock P/E - 19.3
Industry PE - 17.5
Conclusion:
Technically, the strong price pattern at the bottom and then there is a trendline and price pattern breakout with huge volumes and there is change in price structure from lower highs lower lows to higher highs and higher lows. This itself gives strong conviction to buy at current levels and add more on dips if it comes. Vedanta is the market leader in the commodities segment and looking at the current market scenarios where metal, oil & gas and power sector are doing well due to various macro-environment factors and the company's improvement in profit and profit margins, various growth prospects, debt repayment being taken cared of and demerger benefits, the stock at current market price of 257 is a strong value buy for a minimum target of 300 in 10-15 trading sessions, which gives return of 16% in just 2 weeks.
Trade closed manually:
Since the holding period exceeded the mentioned timeframe, we are closing this call and booking a profit around 270-272.
Trade closed: target reached:
Vedanta was a strong buy call at 255-260 levels, after that investor earned high dividend as well as high returns as Vedanta is now trading around 390 levels. Given the rise in commodity price, good guidance given by the management and word given by management that significant debt would be reduced and demerger going to happen, this will easily cross 500 levels.